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B. Riley analyst Bryce Rowe lowered his rankings on shares of 10 enterprise improvement firms because of a not-so-favorable elementary and valuation backdrop.
Among the many names that Rowe downgraded to Impartial from Purchase embody: Ares Capital (NASDAQ:ARCC), Blue Owl Capital Corp. (NYSE:OBDC), Capital Southwest (NASDAQ:CSWC), Fidus Funding (NASDAQ:FDUS), Foremost Avenue Capital (NYSE:MAIN), Oaktree Specialty Lending Corp. (NASDAQ:OCSL), Saratoga Funding Corp (NYSE:SAR) and WhiteHorse Finance (NASDAQ:WHF).
Horizon Know-how Finance (NASDAQ:HRZN) and Stellus Capital Funding Corp. (NYSE:SCM) every have been minimize to Promote from Impartial.
In a word to purchasers, the sell-side analyst raised issues about how decrease short-term charges might adversely influence BDC earnings, “however extra importantly, a quicker tempo of Fed fee cuts might coincide with deteriorating macro circumstances.”
Ought to the Federal Reserve begin reducing charges this 12 months, Rowe reckons “margins for error might compress and whole dividends distributions might fall.”
On the valuation entrance, Rowe believes upside for the group is proscribed on a price-to-NAV foundation. “Sideways-to-lower feels just like the sector’s almost definitely path from right here,” he contended.
He famous that the common P/NAV for externally-managed BDCs stands at about 94%, which represents the sector’s strongest valuation since April 2022.